An exchange-traded fund (ETF) refers to a basket of securities/ pooled investment securities you can buy and sell through a stock exchange or brokerage firm. ETFs have attracted many investors because of the low operational and management cost and are more diversified.
A sustainable ETF will put more emphasis on assets that have a positive contribution to the environment and society. Therefore, an ETF portfolio allows an investor to invest in a diversity of environmentally and socially beneficial securities through a single purchase.
As such, an ethical investor will focus on those investment portfolios that align with his values and not those that do not, no matter how profitable they might seem. This article guides you on how to find sustainable ETFs.
Determine Whether The EFT Is Ethical or Not
Ethics refers to a set of principles that one considers moral and guides behaviors and conduct. Different people have different ethics; as such, the definition of ethics is based on a personal perspective. But no matter how you define ethics, the golden rule remains that we do to others the same way we would like them to do.
Therefore, as an ethical investor, the first thing to check when choosing a particular EFF portfolio is whether the securities in that portfolio favor your values. Of course, you will avoid those portfolios whose securities do not align with your morals and values.
It’s better to go for a single theme EFTs to make it easier for you to determine which ETF to buy or leave out. In single-theme ETFs, you have a single ethical issue that you would like to support, such as greenhouse effects, so you buy securities only from companies focusing on reducing greenhouse emissions.
Are The Chosen ETFs Sustainable?
The definition of sustainability, in this case, could mean two things; the first one is whether the chosen ETF will be profitable in the long term. The second definition of sustainable ETFs is based on the actions of the company in which you are investing into.
If the company’s goals will cause harm to society in the long term, then the EFT is not considered sustainable. Similarly, if the ETFs pose a risk of losses in the future, they are still not regarded as sustainable. Therefore, an ethical investor should only invest in ETFs from companies that do not harm the environment and society and do not have a risk of financial loss in the future.
Research More About the Chosen ETFs
It is good to have a better understanding of the securities you would like to buy; it’s essential to research the risks of the investment product. You will clearly understand the cost of operating and managing a given fund and how the company will invest your funds.
Summary
Finding sustainable ETFs involves determining whether the given investment product aligns with your ethics. You should also seek to know if the chosen EFT will guarantee returns in the long term by doing adequate research on its performance.
